Basic & Sector ETF Portfolios for October

The US Sector and Basic ETF Portfolios have been updated for October. Both portfolios have no turnover from last month, below is a brief review:

US Sector Momentum – The US Sector Momentum Portfolio continues to hold  Health Care Select Sector SPDR (XLV) based on 6-month price momentum.

Year-to-date the strategy is up 3.77%.  For background on this strategy click here.

The table below shows various momentum metrics for sector ETFs:

Symbol Name Quarterly 6 Month Year Average 200 Day SMA
XLB Materials Select Sector SPDR 4.81% 0.60% 23.32% 9.58% 4.04%
XLE Energy Select Sector SPDR 11.15% 3.30% 23.96% 12.80% 5.78%
XLF Financial Select Sector SPDR 6.93% -0.45% 29.70% 12.06% 7.21%
XLI Industrial Select Sector SPDR 3.08% -1.27% 23.58% 8.46% 2.62%
XLK Technology Select Sector SPDR 7.74% 3.02% 29.30% 13.35% 8.09%
XLP Consumer Staples Select Sector SPDR 3.75% 6.59% 22.94% 11.09% 6.73%
XLU Utilities Select Sector SPDR -0.57% 5.94% 10.41% 5.26% 3.20%
XLV Health Care Select Sector SPDR 6.08% 7.79% 27.49% 13.79% 9.29%
XLY Consumer Discret Select Sector SPDR 7.24% 4.51% 32.47% 14.74% 8.28%

Basic ETF Portfolio – The Basic ETF Portfolio went several months without turnover, holding  Vanguard Total Stock Market ETF (VTI), Vanguard REIT Index ETF (VNQ), and Vanguard Total Bond Market ETF (BND) until las month. However, for September the strategy rules called for a sale of BND at a gain of 1.5% (excluding dividends). The proceeds were used to purchase 119 shares of DBC which based on the portfolio’s momentum rules is tied with VEU for third place this month. The tie will be granted to the existing position, thus, there is no turnover this month.

Below is a table showing the various momentum metrics for the five available ETFs in the Basic Portfolio.  For strategy background, click here.

Symbol Name Quarterly Half Year Year Average 200 Day SMA
BND Vanguard Total Bond Market ETF 1.57% 3.73% 4.81% 3.37% 2.31%
DBC PowerShares DB Commodity Index Tracking 11.38% -0.42% 7.54% 6.17% 3.91%
VEU Vanguard FTSE All-World ex-US ETF 6.73% -1.08% 12.87% 6.17% 4.30%
VNQ Vanguard REIT Index ETF 0.09% 3.73% 28.78% 10.87% 4.17%
VTI Vanguard Total Stock Market ETF 6.19% 2.94% 26.94% 12.02% 6.66%

Total portfolio gain to date is 3.78% including dividends.

Ivy Portfolio for October

Early in 2012  Scott’s Investments added a daily Ivy Portfolio spreadsheet. This tool uses Google Documents and Yahoo Finance to track the 10 month moving average signals for two of the portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages.

The Ivy Portfolio spreadsheet tracks the 5 and 10 ETF Portfolios listed in Faber’s book. When a security is trading below its 10 month simple moving average, the position is listed as “Cash”. When the security is trading above its 10 month simple moving average the positions is listed as “Invested”.

The spreadsheet’s signals update once daily (typically in the evening) using dividend/split adjusted closing price from Yahoo Finance. The 10 month simple moving average is based on the most recent 10 months including the current month’s most recent daily closing price.  Even though the signals update daily, it is not an endorsement to check signals daily. It simply gives the spreadsheet more versatility for user’s to check at their leisure.

Now you can follow me on Stocktwits and Twitter!

The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10 month simple moving average, using both adjusted and unadjusted data.

If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data you will see differences in the percent an ETF is above/below the 10 month SMA. This could also potentially impact whether an ETF is above or below its 10 month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach.

I do not track these portfolios as hypothetical portfolios like I do with other portfolios on the site. However, I will periodically post backtest results on the strategy. Below are updated backtest results for the Ivy Portfolio using

The backtest results for the Ivy 5 Portfolio since 2007 and 10 month simple moving average with a monthly update are charted below. For the backtests, iShares Barclays Aggregate Bond (AGG) was used in lieu of BND and iShares MSCI EAFE (EFA) was used in lieu of VEU because they have longer trading histories:

The Ivy 10 Portfolio, using a 10 month moving average and updated monthly has performed as follows since 2007 and compared to SPY. Again, AGG and EFA were used in the backtests:

The strategy’s strength is avoiding significant drawdowns during periods of market turbulence, such as 2008. During periods of strong uptrending equity markets it has the potential to under-perform a benchmark such as SPY.  ”Choppy” markets, in which markets are trend-less can also reduce the strategy’s returns as securities bounce above and below long-term moving averages without establishing a trend.

The current signals based on September 28th’s closing prices are below.  Real-estate linked ETFs and US Equity ETFs remain the strongest sector in terms of their percent above their 10 month moving average. All of the securities in the 5 and 10 ETF portfolios are above their 10 month moving averages.

The first table is based on adjusted historical data and the second table is based on unadjusted price data:

Weekend Readings

Posts have been lighter than usual this month. I am focusing on creating some more relevant, albeit less frequent, content that will offer long-term value for readers. More to come as things develop but if you have feedback and what you would like to see more or less of please share it with me.

Below are a few articles for this weekend, end of month updates will be posted on Sunday.

Applied Quantitative Value (Part 4 of 4) – Turnkey Analyst

The Permanent Portfolio Turns Japanese – Advisor Perspectives

Saving and Investing For Retirement Part 1Part 2, and Part 3 – Portfolioist

 The Coming Dividend Tax Hike – Mebane Faber

What if the Fed Has it All Wrong? (pdf) John Mauldin

Restoring the Legitimacy of the Federal Reserve – The Baseline Scenario

Fed Pulls Out the Bazooka and Fight the Fed by Owning Gold – Bill Fleckenstein

 Dow will repeat 2007-2008 peak-crash cycle – Marketwatch

Weekend Readings

Below are a few investment related links and articles I am reading this weekend:

Cheap ETFs Provide an Almost Free Lunch – Abnormal Returns

Challenge of Long Term Income Part I and Part II – Geoff Considine

Eating the Future – John Hussman

 Stocks’ Future Return: Just 5.6% Annualized – Mark Hulbert

Sheila Bair and the bailout bank titans – Fortune

QE Infintiy: Unintended Consequences (pdf) John Mauldin

The Treasury recently launched a Finance Data Directory , which looks like a great one-stop resource for anyone interested in economic research and data.

Investment Readings

When was the last time you had the opportunity  to speak directly with a trading mentor?  Better yet, when would you have the chance to speak with this person before you became a student of his? For many reasons, it seldom ever happens but Doc  Severson of OptionsMD is giving you that chance right here. His phone number is posted on the video so give it a shot, enrollment for his options education program is closing this week.


Low-Water Mark – John Hussman

The Direction of the Compromise (pdf) – John Mauldin

“The Bible Says…….” &  We’ll Know It When We See It – Cumberland Advisors

Doug Kass: What to Do When You’re Wrong

How to Identify High Quality Stocks, Continued (Part 3b of 4) – Turnkey Analyst

Tuesday Readings

Below is a list of investment related articles I am reading this week:

As a follow-up to last week’s Option Offer, here is an interview with Doc Seversen in which he is asked “What’s the #1 piece of advice you wish you learned (but didn’t)?”

The Lending Lindy – Bill Gross PIMCO

Debt Be Not Proud (pdf) – John Mauldin

ECB, OMT: Nuances and Fireflies – David Kotok Cumberland Advisors

The Ultimate Income Strategy – Higher Yield and Lower Volatility – Geoff Considine

Late-Stage, High-Risk – John Hussman

Fight the Good Fight Against Fees, Tax Inefficiency – Turnkey Analyst

A Decade of Volatility: Demographics, Debt, and Deflation – John Mauldin’s Outside the Box

High Yield Stock Momentum Portfolio

Once per month I update a high yield dividend stock momentum portfolio on Scott’s Investments.  The portfolio is comprised of the highest yielding stocks in the S&P 500 with high price momentum.

The portfolio is a simple quantitative strategy and begins by screening the S&P 500 for stocks yielding greater than 4%. The results are then ranked by their 6 month returns.  The top stocks are then added to a hypothetical portfolio and tracked publicly on Scott’s Investments.  This month there were 53 results, four more than last month.

Now you can follow me on Stocktwits and Twitter!

Per a previous article, the highest momentum, high-yield stocks have historically out-performed lower yielding, lower momentum stocks.  The screen is more of a trading strategy and less of a passive income strategy, although the dividends do play an essential component in the overall returns. Thus, turnover could be high and the strategy is not for everyone but I have added one modification to the strategy to minimize turnover.

In order to limit turnover stocks with yields that have fallen below 4% due to share price appreciation will remain in the portfolio. Stocks will only be sold when yield falls below 4% due to dividend cuts or when the six-month performance would otherwise lag the top 12 stocks in the screen.

The portfolio has turnover in four positions for September. DTE Energy (DTE), PG&E Corp (PCG), Reynolds American (RAI), and Federated Investors (FII) are all being sold. DTE lost 1.23% in its one month stint in the portfolio, PCG lost 3.57% in its 3 months as a holding, RAI lost 2.84% in 2 months, and FII eked out a .14% gain. Individual security returns exclude dividends.

The proceeds were used to purchase positions in Eli Lilly & Co (LLY), HCP Inc (HCP), Gannett Co. (GCI), and American Electric Power (AEP). LLY currently yields 4.21%, HCP 4.32%, GCI 4.91%, and AEP 4.33%.

The High Yield Momentum Portfolio was designed to be fully invested at all times regardless of market conditions. However, as part of a larger portfolio there may be additional steps an investor can take to reduce risk and diversify strategies.  For example, the Ivy Portfolio uses a 10 month moving average to dictate an invested or cash position (signals are updated daily at Scott’s Investments). An investor could hedge long positions by shorting (or purchasing an inverse ETF) an equity market index such as the S&P 500 when it trades below a long-term moving average.

Below are the top 15 high yield momentum stocks as of September 10th.  Keep in mind that only 10 stocks are held in the portfolio, the current holdings can be viewed on the right-hand side of Scott’s Investments and in the second table below.

Data source: Finviz

Ticker Company Sector Dividend Yield Performance (Half Year) 200-Day Simple Moving Average
T AT&T, Inc. Technology 4.70% 22.21% 16.73%
LLY Eli Lilly & Co. Healthcare 4.21% 19.62% 15.87%
HCP HCP, Inc. Financial 4.32% 18.73% 13.29%
MO Altria Group Inc. Consumer Goods 5.11% 16.15% 10.47%
GCI Gannett Co., Inc. Services 4.91% 15.28% 18.56%
AEP American Electric Power Co., Inc. Utilities 4.33% 14.85% 10.95%
VZ Verizon Communications Inc. Technology 4.68% 14.80% 10.29%
HCBK Hudson City Bancorp, Inc. Financial 4.24% 14.76% 17.47%
CINF Cincinnati Financial Corp. Financial 4.22% 12.53% 12.20%
FTR Frontier Communications Corporation Technology 8.64% 11.57% 12.69%
PNW Pinnacle West Capital Corporation Utilities 4.01% 11.42% 8.48%
CTL CenturyLink, Inc. Technology 6.92% 11.35% 11.87%
LEG Leggett & Platt, Incorporated Consumer Goods 4.77% 9.31% 11.26%
HCN Health Care REIT, Inc. Financial 5.10% 9.15% 6.02%
STX Seagate Technology PLC Technology 4.29% 9.09% 18.91%

Current holdings:

Position Momentum Analysis Shares Purchase Price Purchase Date Percentage Gain/Loss Excluding Dividends Current Yield
MO Here 312 31.79 5/11/2012 8.37% 5.11%
VZ Here 236 44.9 7/11/2012 -1.87% 4.68%
CINF Here 312 34.45 2/10/2012 12.13% 4.22%
FTR Here 2349 4.71 8/9/2012 -1.70% 8.64%
LLY Here 230 46.52 9/10/2012 0.00% 4.21%
T Here 295 33.59 5/11/2012 11.40% 4.70%
HCP Here 231 46.28 9/10/2012 0.00% 4.32%
CTL Here 260 42.54 8/9/2012 -1.55% 6.92%
GCI Here 656 16.3 9/10/2012 0.00% 4.91%
AEP Here 246 43.39 9/10/2012 0.00% 4.33%

Since inception the portfolio is up 8.81% including dividends. Returns exclude commissions and taxes. Given the high turnover of the strategy, the results to this point are underwhelming. The chart below compares the returns of this strategy to SPY and AOR, the iShares S&P Growth Allocation ETF:


High Yield Dividend Champion Portfolio

In December 2010, I created a screen/hypothetical portfolio called the “High Yield Dividend Champion Portfolio.” The screen is tracked publicly as a continuous hypothetical portfolio with a starting balance of $100,000 on Scott’s Investments (see the right hand column for a link to the spreadsheet).

Like many of the screens, strategies, and portfolios I track and prefer, the High Yield Dividend Champion Portfolio uses a small number of historically relevant ideas to create a simple, yet powerful investment plan. As I previously detailed, “Some studies have shown that the, highest yielding, low payout stocks perform better over time than stocks with higher payouts and lower yields.”

The High Yield Dividend Champion Portfolio attempts to capture the best high yield, low payout stocks with a history of raising dividends. There are numerous ways to gauge the “best” high yield/low payout stocks. The list starts with the “Dividend Champions” as compiled by DRIP Investing. The list is comprised of stocks that have increased their dividend payout for at least 25 consecutive years

The Dividend Champions are the starting point and we first rank them based on yield. The highest 1/3 yielding stocks are kept and the rest are eliminated. With the remaining high yielding stocks we eliminate half with the highest payout ratio. The remaining stocks are then assigned a rank based on the ratio of their dividend yield to payout ratio (the same as a trailing earnings/price ratio, or the inverse of the trailing P/E ratio).

Now you can follow me on Stocktwits and Twitter!

The top 10 stocks based on this ratio make the portfolio. Stocks will be sold at the re-balance date (generally around the 5th of the month) when they drop out of the top 12 (to limit turnover) and are replaced with the next highest rated stock.

For September 6th there are two changes to the portfolio,123 shares of Chevron (CVX) were sold at a gain of 8.98% (excluding dividends) and 306 shares of Mercury General (MCY) at a loss of 11.58% (excluding dividends). The proceeds used to purchase Vectren (VVC) and Questar (STR).  VVC currently yields 3.54% while STR yields 3.38%. Both stocks have pulled back in recent weeks despite overall equity market strength.

Chart courtesy of Finviz:


The equity curve of the portfolio is plotted below and since inception it is up over 34%, including dividends. All discussions of returns are strictly hypothetical and exclude commissions and taxes.

The top 18 rated stocks based on this portfolio’s criteria are listed below:

Name Symbol Yield Payout E/P
Universal Health Realty Trust UHT 5.70 39.94 0.1427
Diebold Inc. DBD 3.50 37.50 0.0933
Community Trust Banc. CTBI 3.66 43.45 0.0843
Eagle Financial Services EFSI 3.59 43.11 0.0833
Tompkins Financial Corp. TMP 3.71 48.32 0.0767
Universal Corp. UVV 4.13 59.94 0.0689
Vectren Corp. VVC 4.96 72.16 0.0688
Sonoco Products Co. SON 3.92 60.91 0.0644
Sysco Corp. SYY 3.56 56.84 0.0627
Questar Corp. STR 3.44 57.14 0.0603
Consolidated Edison ED 3.99 67.04 0.0596
American States Water AWR 3.26 56.80 0.0574
Clorox Company CLX 3.52 62.29 0.0565
UGI Corp. UGI 3.54 63.91 0.0554
Kimberly-Clark Corp. KMB 3.54 65.20 0.0543
Bemis Company BMS 3.30 63.69 0.0519
California Water Service CWT 3.44 71.59 0.0481
Procter & Gamble Co. PG 3.35 72.28 0.0463

A note regarding Eagle Financial Services (EFSI). The stock is a Dividend Champion but trades over the counter and has very low volume. Any entry/exits in this stock should be treated with caution and limit orders are highly recommended.

Options Offer

Quickly, the Dividend Champion Portfolio will be updated tonight. I am a day behind but there will be two new holdings in the portfolio.

One way to support my site (which is free for all) is to consider special offers from advertisers who have piqued my interest. OptionsMD is launching a new trading course and in conjunction with the launch Doc Severson of OptionsMD is giving away one of his favorite  trading strategies …

 Click here -> DOWNLOAD your Trading Strategy

Only Doc and his private clients have seen the strategy, but he’s giving away a limited number of copies before he pulls it off the market

 Click here -> DOWNLOAD your Trading Strategy

And, he’s disclosing ALL the rules in an easy to  understand training video and blueprint – no strings attached!

P.S.  Doc Severson will be opening up his much anticipated  Options MD course sometime in the next week or so and,  rather than just hyping up some product, he’s decided to  give away content to give you a taste of  what’s to come …

 Click here -> DOWNLOAD your Trading Strategy

Mid-Week Investment Articles

Below are some articles I am reading this week:

Global Value: Building Trading Models with the 10 Year CAPE – Mebane Faber

The Consequences of Easy Monetary Policy (pdf) – John Mauldin

ECRI’s Embarrassing Recession Call – Doug Short

Bubble in Safety (pdf) – Grant’s Interest Rate Observer, hat tip Mebane Faber’s new Idea Farm newsletter

Is the Stock Market Cheap? Doug Short, see also his valuation overview here

Follow me on Stocktwits and Twitter!